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Keywords

equityleasebankruptcychapter 11 bankruptcyseizure
leasebankruptcyrehabilitation

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In re Whiting Pools, Inc., 10 B.R. 755, 48 A.F.T.R.2d 81-5724, 7 Bankr.Ct.Dec. 658, Bankr. L. Rep. P 68,015

Facts

Whiting Pools, Inc. filed for Chapter 11 bankruptcy on January 15, 1981, after the IRS seized nearly all of its tangible property the day before to satisfy approximately $92,000 in unpaid employment taxes. The seized property included equipment, vehicles, and inventory essential for the debtor's business operations. The IRS sought permission from the Bankruptcy Court to sell the seized property, arguing that the automatic stay provisions did not apply to them.

Whiting Pools, Inc. filed a petition under Chapter 11 of the Bankruptcy Code on or about January 15, 1981. Whiting Pools, Inc., the debtor in this proceeding, is engaged in the business of selling, installing and servicing swimming pools. It also retails pool equipment and supplies from its place of business at 7244 Palmyra Road, Fairport, New York.

Issue

1. Can the IRS proceed with the sale of the seized property without the Bankruptcy Court's permission? 2. If the stay applies, should it be lifted? 3. If the stay is continued, can the court order the IRS to turn over the seized property to the debtor?

The issues presented to the Court are: First, can the Internal Revenue Service proceed with its sale of the seized property without permission of the Bankruptcy Court; second, if the Service is bound by the provisions of 11 U.S.C. s 362(a), should the stay be lifted pursuant to s 362(d); and third, if the stay is continued, can this Court order the Service to turn over the seized property to the debtor so that rehabilitation of the debtor can be effected.

Rule

The automatic stay provisions of the Bankruptcy Code apply to the IRS regarding property seized from the debtor, and the court has the authority to order the turnover of property necessary for the debtor's reorganization.

The automatic stay applies to the Service under either of these paragraphs. The seized property, although in the custody of the Service, is, nevertheless, property of the debtor.

Analysis

The court determined that the automatic stay was applicable to the IRS, as the seized property remained the debtor's property despite the seizure. The court found that the IRS could not lift the stay because the debtor had substantial equity in the property and the property was essential for the debtor's reorganization. The court also concluded that the IRS's interest could be adequately protected by returning the property to the debtor under specific conditions.

It is abundantly clear to this Court that the United States' interest in the property can adequately be protected if the debtor's property is returned to it and its business is recommenced.

Conclusion

The court ordered the IRS to release the seized property to Whiting Pools, Inc. upon the debtor making certain payments to the IRS, thereby ensuring the Government's interests were protected while allowing the debtor a chance to reorganize.

Therefore, to accomplish the purposes of both the Bankruptcy and Internal Revenue Codes, the Service must release the seized property to the debtor-in-possession upon the following conditions: 1. That the debtor-in-possession pay IRS as adequate protection under 11 U.S.C. s 361 the sum of $20,000 before the turnover occurs.

Who won?

Whiting Pools, Inc. prevailed in the case as the court ruled in favor of the debtor, allowing them to regain possession of the seized property necessary for their business operations.

The United States claims to be owed approximately $92,000 in back employment taxes.

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